How to minimize the impact of Competition entrance to the market

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New answer on Jul 20, 2020
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Anonymous A asked on Jul 15, 2020

Hi,

There is this very interesting question (Case). A company that is the sole provider of a specific market (Monopoly), and recently the government has allowed competition to enter the market, what key factors would you consider in looking at how this company can minimize the competition impact?

Excited to hear your thoughts.

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Udayan
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updated an answer on Jul 16, 2020
Top rated McKinsey Case & PEI coach/Multiple real offers/McKinsey EM in New York /6 years McKinsey recruiting experience

Hi,

There are many examples of this (British Telecom, Royal Mail etc.)

There are many approaches, one is below

Leverage/protect current advantages that we have that are hard to access

1. Customer base - we have access to customers that we can start to offer deals, reach out directly to to speak about our advantages vs competitors etc.

2. Infrastructure where applicable - many such industries have huge infrastructure investments that allow them to be monopolies - depending on the terms of the opening up some of this can be leveraged for their own gain

3. Existing knowledge of processes - it takes time for new comers to get up to speed and get set up etc. As an incumbent you have a significant head start here

4. Inherent bias against change - people don't want change, it upsets their routine. Make it hard to change for customers

Minimize/close the gaps with external competitors

1. Customer service - rapidly expand to meet industry criteria

2. High financial burden - often monopolies are ladled with debt, pension costs and low productivity and these need to be addressed head on

3. R&D - not enough incentive to innovate. You could acquire a company in another country for quick expertize

You can further map these against internal capabilities to prioritize different initiatives

Hope the helps,

Udayan

(edited)

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Ian
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replied on Jul 20, 2020
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

This is a great question!

I tend to avoid generic frameworks, but this is a very good time to use the 3 Cs!

Company

  • Costs - We need to cut costs. We have likely gotten lazy/inefficient over the years. We need to re-evaluate both fixed and variable costs and make our operations more efficient
  • Revenue - Because we've set the market, we've determined prices. We need to re-evaluate our offering. Are our prices right? Can we continue to charge what we do or do we need to charge more effectively?

Customer

  • Customer insights - We know more about our customers than anyone. Let's leverage that data/insight to target them best
  • Loyalty/stickiness - We've had our customers for years. They should be sticky/loyal. Let's find ways to keep them (i.e. make switching costs high, build a loyalty/points program, etc.)

Competition

  • Partner - If you can't beat em, join em. Who is coming in that is the biggest threat? Can we partner with them to keep an advantage in the market?
  • Beat - What can we do to smother competition? This might catch the eye of trust-busting authorities, but what can we do with our existing moats to keep them out? Can we buy anything they build? Can we offer super competitive prices/discounts, etc. etc.
  • Barriers to entry - Our unnatural monopoly reign has ended, but can our natural monopoly reign begin? We had big moats around us thanks to the government, but do they still exist? How do we leverage our existing buyer + supplier power to keep wining (i.e. get/demand the best prices). How can we introduce new barriers to entry? Can we invest so much $ into having the best, that noone would be crazy enough to challenge us?
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Clara
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replied on Jul 16, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

I would need to know a bit more regarding the case specifics, industry, etc. to give you a better guidance.

However, with what you wrote, this is very clearly a PRODUCT case, in which you need to see:

  • Which is the value proposition of your product
  • How this adapts to what your customer wants
  • What is the value prop of other products from the soon-to-be competitors

They key of the case is going to be precisely on that match of CLIENT - PRODUCT.

Hope it helps!

Cheers,

Clara

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Udayan gave the best answer

Udayan

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